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Business and Policy Areas
Business and Policy Areas

FASB Votes to Issue Leasing Guidance

December 1, 2015

The Financial Accounting Standards Board (FASB) completed its deliberations on the leasing project that was added to its agenda in 2006 and on November 11 instructed its staff to draft a final standard. As part of its final deliberations, the Board decided that the new standard —which is expected to be issued in the first quarter of 2016—will be effective for public companies (including not-for-profit organizations that are conduit bond obligors or that have other publicly traded debt) for fiscal years beginning after December 15, 2018 (FY20 for most colleges and universities). All other entities must adopt the new standard in fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities upon issuance of the standard.

The basic tenet of the new standard is that all leases convey a right-of-use, which results in both an asset and a liability that will be reflected on the balance sheet of lessees. Leases will be classified as either Type A leases (similar to current capital leases) or Type B leases (similar to current operating leases). Amortization of the right-of-use asset will be recognized separately from the lease liability for Type A leases. Type B leases will be recognized as a single lease expense. There will be no changes to today's model for lessor accounting.

Although the effective date is still three to four years away, institutions should begin planning now for implementation. The standard will need to be applied retrospectively, so it will be important for institutions that issue comparative financial statements to begin capturing the information at least one year prior to implementation. In addition, there are likely to be system changes required to properly track and account for all leases as well as possible changes to internal controls over these activities.


Sue Menditto
Director, Accounting Policy